USGIF GotGeoint BlogUSGIF promotes geospatial intelligence tradecraft and a stronger community of interest between government, industry, academia, professional organizations and individuals focused on the development and application of geospatial intelligence to address national security objectives.

May 24, 2016

New York PSC takes major step toward transactive energy with REV

Gartner has predicted that by 2020 the largest electric power company will be an Uber-like behemoth that will not own assets but will simply manage energy suppliers and energy consumers in an open market. This business model requires transactive energy, where energy flows are determined by market forces.

The New York Public Service Commission (NYPSC) has taken a major step toward a future of transactive energy. New York's "Reforming the Energy Vision" (REV) is moving the New York state electric utility industry toward a radical redefinition of utilities as we have known them over the past hundred years since Tesla and Edison created the electric power industry. In the future in New York State the utility industry will be comprised of distributed system platform (DSP) providers, basically providing the grid but not directly selling energy, and a competitive energy market with consumers and many energy providers including bulk power generators and distributed energy generators including you and me with rooftop solar panels. This model has similarities with the UK model which is disrupting the traditional energy market in the UK.. The development of the REV model is being closely watched by many utilities who see the writing on the wall and hear the death knell of the utility business model we have known for the past 100 years.

In 2014, Governor Cuomo announced REV with the intention to develop an integrated energy network able to combine a central grid and distributed power generation.

May 19, 2016 the New York State Public Service Commission (NYPSC) adopted Order Adopting a Ratemaking and Utility Revenue Model Policy Framework (Download New York REV Ratemaking May 2016 NYPUC {D6EC8F0B-6141-4A82-A857-B79CF0A71BF0}), an order that outlines ratesetting for a multi-year regulatory-driven process to reform the electric power utility business model in New York State. The NYPSC has made it clear that this process has to occur much more rapidly than regulators and utilities are accustomed to. The order states that the historic pace of regulatory change is inadequate, because recent developments in this and other industries demonstrate that slow and deliberate progress is not always an option and may no longer be acceptable. The NYPSC intends to establish a regulatory environment that encourages faster adoption of business model change that it sees as necessary.

For the electric utility industry which is facing large infrastructure needs, decreasing system efficiency, environmental demands, weather and customer driven resilience requirements, customers who want more choice, and technology that is decentralizing the grid, the current utility and regulatory model could lead to grid defection, stranded investments and increasing financial challenges. The NYPSC has recognized that the structure of competitive markets outside of the utility industry has changed dramatically and the utility sector, which has been insulated from the opportunities and the competitive pressures of the modern information economy, is now going to have to change rapidly. Technology in a competitive market reduces excess inventory, increases asset utilization, and makes possible innovative marketing strategies. As a result, the traditional utility’s role has evolved to a platform service that enables transactive energy in the form of a multi-sided market in which buyers and sellers interact.

The reformed electric system will be driven by consumers and non-utility providers, and it will be enabled by utilities acting as Distributed System Platform (DSP) providers. Utilities are responsible for reliability, and the functions needed to enable distributed markets are integrally bound to the functions needed to ensure reliability.

It is our conclusion that requiring the utilities to serve as DSPs under our regulatory authority and supervision is in the best interests of New York consumers.

By expanding the role of the utilities to include DSP functions, utilities will have the regulatory obligation, operational capability, and economic incentive to optimize the use of DER (distributed energy generation).

As the platform provider, utilities will not participate as owners of DER where a market participant can and will provide these services. Thus, with the few exceptions discussed, DER will remain a non-utility service provided by the competitive market.

In order for distributed generation to compete on an equal footing, interconnection with the grid must be enabled through technical rules and processes that are not only safe but also efficient and expeditious.

Each utility will serve as the platform for interface among its customers, aggregators, and the distribution system. Utilities will respond to new trends by adding value, thereby retaining customer base and the ability to raise capital on reasonable terms. Simultaneously the utility will serve as a seamless interface between aggregated customers and the NYISO (The New York Independent System Operator (NYISO) operates competitive wholesale electric power markets).

Reforming ratemaking

The NYPSC cites three principles of the Framework Order as particularly relevant to the reform of ratemaking.

The unidirectional grid must evolve into a diversified distributed model engaging customers and third parties.

Ensuring universal, reliable, resilient, and secure delivery service at just and reasonable prices remains a function of regulated utilities.

The overall efficiency of the system and consumer value and choice must be improved by achieving a more productive mix of utility and third-party investment.

The NYPSC states that utilities will remain regulated, but will have new ways of generating revenue and creating investor value:

The new ways of generating revenue are intended to create a regulatory environment where utilities can create shareholder value, comparable to or superior to conventional investments, by integrating third-party solutions and capital that improve the efficiency, resiliency and flexibility of the physical networks, reduce consumer total costs and achieve the State’s policy objectives.

Specifics

The specific measures that the NYPSC intends to mandate for the utility sector in New York State includes

Platform service revenues - new forms of utility revenues associated with the operation and facilitation of distribution-level markets.

Earning Adjustment Mechanisms- there are temporary, short-term measures that are intended to bridge the transition form the current business model to the new model.

System efficiency: Each utility will propose a peak reduction target and a load factor improvement target.

Energy efficiency: The Clean Energy Advisory Council will develop targets for energy efficiency.

Customer engagement: Utilities will be able to propose positive opportunities based on customer uptake in innovative engagement programs.

Interconnection: A positive earning opportunity will be developed based on satisfaction surveys of DER providers regarding utilities’ progress in timely and cost-effective interconnection approvals.

Affordability: To assist low-income conumers, affordability metrics will be established as scorecards, and financial incentives will be established in rate cases as appropriate.

Greenhouse Gas reductions: The NYPSC is considering a Clean Energy Standard to achieve the State’s target of 50% renewable generation by 2030.

Data access. The conditions under which utilities may charge for individual customer usage data are established. Standard reporting of aggregate customer data is provided for. Certain basic levels of information will be free of charge, while utilities may charge a fee for provision of more refined data or analysis.

Active consumers — customers who use DER with the purpose of reducing their bills

Prosumers — those customers who install solar PV generation or other technologies that allow them to sell energy to the grid

It was also recommended that a method be developed for valuing the contributions of distributed energy generation (DER). This is intended to be used in valuing DER such as solar PV. It would be used to reform net energy metering (NEM). Net metering allows solar users to receive credit for excess power back to the grid at retail rates. In the immediate future it is recommended that the current NEM policy should be continued for small rooftop installations. (A partnership of solar providers and utilities has just filed a proposal for maintaining NEM with the NYPSC)